APPEALING BUSINESS

When the real estate market began to crumble in 1991, Albert Friedman knew he had a problem.

Downtown property values were collapsing fast in what would become the worst office leasing market in decades. But tax assessments on Mr. Friedman's historic Courthouse Place building at 54 W. Hubbard St. were still headed up. He needed help.

For relief, he could have turned to the blue-chip Loop law firm that already handled his property tax appeals work, Keck Mahin & Cate. Instead, he hired another firm that, like Keck, had a reputation for good work but that also brought him one of the biggest political names in town: Madigan & Getzendanner, the firm of Illinois House Speaker Michael Madigan.

Within two years, appeals filed by partner Vincent J. "Bud" Getzendanner Jr., who supervises the firm's property tax work, won a series of assessment cuts totaling 31% from then-Cook County Assessor Thomas Hynes. Today, the property is assessed at a level 15% below its 1990 value.

The question is whether Cook County taxpayers are getting their money's worth from a county assessor's office that long has been haunted by suggestions -- perhaps based on reality, perhaps on mere perceptions -- that politically connected law firms get better results for their clients than those without clout.

In an effort to find out, Crain's Chicago Business in the past year engaged in an unprecedented research project that examined the bottom-line workings of an office that sets the taxable values for 1.5 million pieces of property in Cook County.

Crain's examined more than 23,000 commercial and industrial property case files for the 1994-96 reassessment cycle (the most current data available when research began in mid-1997), developing a computer database more comprehensive than that compiled by the assessor's office itself.

Combined with interviews with dozens of key players in the arcane world of appealing assessments for property owners, the statistics paint a complex portrait of an office that has undergone dramatic change from the days when it was considered the fund-raising arm of the Cook County Democratic Party -- but one that has not totally outlived its old reputation (deserved or not) as a haven where political insiders can practice their legal craft.

"Some of what you see is clout, and some of it is professional expertise. It's hard to separate them out," observes Toni Hartrich, former research director for the Civic Federation, who now teaches public administration at Roosevelt University.

What is clear is that a potent mix of talent, high-powered calling cards and experience with the ins and outs of the complex real estate tax appeal process has resulted in millions of dollars in legal fees flowing into law firms affiliated with some of the state's most powerful politicians -- including those headed by Mr. Madigan, former County Assessor Thomas Tully and City Council Finance Committee Chairman Edward Burke.

In the period examined by Crain's, the clout-heavy firms had the biggest edge in getting the largest -- and most lucrative -- cases argued before the assessor's office.

They also had an edge -- though a lesser one -- in other key criteria measured by Crain's: the share of cases in which property owners won reductions, the percent reduction in assessed value and the dollar-value cut in assessed value.

Among key findings:

* The most successful major firm practicing in the assessor's office is headed by Mr. Hynes' brother, Robert.

Among firms that handled at least 100 appeals in the period surveyed, Hynes Johnson & Healy (now known as Hynes Johnson & McNamara) won reductions in 96.2% of its cases -- more than any other. It was the only firm that rated in the top 10 by four measures of success: marketshare, percent of appeals granted reductions and size of reductions by dollar amount and percentage.

* The biggest money involving the biggest cases flows to firms whose rosters include the biggest political names.

The largest average cuts (ranked in dollar terms) in assessed value among major firms were won by those whose partners include Mr. Madigan, County Democratic Chairman Thomas Lyons, Mr. Tully, William Colson (a former law partner of ex-assessor Mr. Hynes) and Alderman Burke (14th) -- in that order.

* Firms with significant political connections nearly always fare better than the average for major firms dealing with the assessor's office, measured by Crain's four criteria.

One notable exception: Rock Fusco & Garvey Ltd., where former Illinois Senate President Philip Rock is a name partner. The firm, previously known as Rock Fusco Reynolds & Garvey Ltd., scored about average in the period surveyed. About 75% of the firm's cases resulted in some reduction in assessed value, vs. an average of just under 79% among firms that handled at least 100 cases in the 1994-96 timeframe.

* Involvement in property assessment scandals in the past is little or no barrier to subsequent success.

A case of redemption

In the late 1970s, Theodore Schmidt and Richard Ginsburg were name partners in a small firm that specialized in practice before the Cook County Board of (Tax) Appeals, which deals with appeals after the assessor is finished with them. Then, federal prosecutors uncovered a major bribery scandal involving the board.

Mr. Ginsburg was convicted in 1984 on 19 counts of mail fraud, bribery and racketeering and surrendered his law license. Mr. Schmidt pleaded guilty to two misdemeanor tax violations and was censured by the Illinois Supreme Court, but kept his license.

Today, successor firm Schmidt & Salzman handles more appeals before the assessor's office than all but one other firm.

"People make mistakes and learn from them," says Mr. Schmidt, a partner in the firm.

Mr. Ginsburg, whose law license has been returned, is of counsel. The firm handled 1,155 cases in the period surveyed, second only to Chicago-based appeals boutique Crane & Norcross, with 1,471.

* An increasing share of key cases is being handled in a way that affords less opportunity for public scrutiny.

Under the "letter property" system now widely used in the central area of the city (see story on Page 20), the assessor no longer proposes an initial assessment on each piece of property, but first receives input from its owner or the owner's lawyer in an attempt to reach consensus. That may make the final figure more accurate, but also may make it easier to disguise political influence.

Though these findings are potentially troublesome, those who deal with the assessor's office also report other, positive signs.

The office's reputation for fairness is improved.

"The process is a lot different than it was 20 years ago. It's much more professional," says developer John Buck, who uses Chicago-based O'Keefe Ashenden Lyons & Ward, Thomas M. Tully & Associates (formerly Tully & Weinstein) and other firms.

The number of firms handling appeals -- more than 700 turned up in Crain's survey -- is up, an indication that the business is opening.

Among the newcomers: Ira Holtzman, a Glenview accountant who entered the business 10 years ago and now wins cuts in 95.5% of his cases, despite having no known political ties.

'Open, professional, fair office'

The use of contingency fees -- which have made some lawyers rich by guaranteeing them a percentage of any tax savings they win -- is down, with owners increasingly insisting on flat, per-case payment.

At 54 W. Hubbard, for instance, Mr. Getzendanner says his firm was paid $6,000 a year, significantly less than the roughly $35,000 it would have received under a traditional contingency fee arrangement that paid lawyers 30% to 35% of the actual tax bill savings.

Both Mr. Hynes, who served as assessor from 1979 to 1997, and James Houlihan, who was appointed assessor a year ago and is running for a full term this November, insist the office has become a wholly impartial operation where the only quality that counts is the ability to marshal facts.

"My intention was to run an open, professional and fair office," Mr. Hynes says. "I did."

Mr. Houlihan pledges the same -- and allowed Crain's to spend a year in his office examining files.

Lawyers also assert that expertise -- such as identifying the most winnable cases -- counts in tax appeals work, as in any other highly specialized area of the law. Mr. Getzendanner says his 25 years of experience helped him assemble the convincing evidence needed to support assessment cuts at 54 W. Hubbard.

Whatever he does, the assessor surely holds one of the hottest seats in local government. The impact on business in particular is crucial, because Illinois relies on the property tax much more than other states to fund schools, and Cook County assesses business property at a higher rate than it does owner-occupied homes.

The amount of money involved is enormous. A $5-million increase in assessed value on a downtown office tower will cost its owner roughly $1 million a year in additional taxes.

Property taxes typically "equal or exceed all other operating expenses combined" in downtown buildings, according to Paul Colgan, public affairs director of the Building Owners and Managers Assn. of Chicago.

The assessor's role is to assess, to appraise. Specifically, during each three-year period -- previously a four-year cycle -- the assessor's staff of 350 lawyers, analysts and other experts reviews the latest real estate data and proposes a value for all property in the county. One-third of the property is reassessed each year.

'An art, not a science'

Owners who want to dispute their proposed triennial assessment can appeal, first by asking the assessor to reconsider and, if that fails, by going to the county Board of (Tax) Appeals and Circuit Court. Under a new law, Cook County owners also can appeal to the Illinois Property Tax Appeal Board.

Once a final property value is set, local government units impose a tax rate, and final bills go out to owners.

While not exactly subjective, the process can be highly inexact, in part because property values can fluctuate wildly with shifts in the economy. As a result, huge numbers of property owners appeal -- about 15,000 commercial and industrial property owners alone each year. Some appeal annually, with an average 44% of such owners appealing in a three-year period.

"This is an art, not a science," says Thomas McNulty, former head of the tax division of the state's attorney's office, who now appeals assessments with Neal Gerber & Eisenberg. "How much is the IBM building worth? Two years ago, Blackstone Real Estate Advisors thought it was $120 million. In late summer, a REIT (Prime Group Realty Trust) paid $239 million for it." (The deal has since fallen through.)

Perhaps because of that ambiguity, the assessor's office long has been known as a place where it's especially helpful to have a connected friend -- or at least know the intricacies of the system.

In the spotlight

Office operations became a major media and political issue in the late '60s, during the tenure of the late P. J. "Parky" Cullerton, who faced charges that he gave breaks to big Democratic donors like Arthur Rubloff, the late real estate magnate.

Mr. Cullerton stepped down in 1974 in favor of Thomas Tully, a protege from the assessor's home 38th Ward on the Northwest Side. Mr. Tully served just one term before stepping down himself and becoming a successful appeals lawyer. His successor was another organization Democrat from a different part of town: Mr. Hynes, who lives on the Southwest Side.

Reforms in the office

A former president of the Illinois Senate, Mr. Hynes presented himself as a reformer. Though records indicate he accepted hundreds of thousands of dollars in campaign donations from appeals lawyers during his tenure as assessor, he also doubled the number of employees with degrees, set up a special unit to help taxpayers appeal and, according to many of those who worked in his office, spread the word that he would not play political favorites.

"We feel we've been able to succeed based on the quality of the presentations we've made," says Richard Worsek of Worsek & Vihon P.C. He contends that the wielding of clout is "a legend, a myth, maybe a vestige of older days."

But because office records only now are being computerized, it has been impossible to track any large number of cases by lawyer. So, Crain's individually examined 23,000 separate industrial and commercial appeals for the years between 1994 and 1996 to develop a database (see story on Page 17). A team of more than a dozen researchers spent portions of a year in the assessor's office, reviewing boxes of files one by one as an office employee first examined each for income tax and other confidential papers.

The findings are clear. As in other specialized areas of the legal profession, being an insider -- for instance, having once worked for the assessor or state's attorney, or having practiced appeals law for many years -- is a huge advantage. Many of the most successful of those insiders also happen to have strong political ties.

The question is whether one of those two factors is dominant, or whether other factors (like varying business strategies among firms and their skill in selecting only winnable cases) explain the differences.

[continued in pt. 2]

James Crowley, incorrectly listed as former head of the state's attorney's real estate division in an Oct. 5 report on tax assessment appeals, was chief of the real estate division of the assessor's office. He works for the law firm Crane & Norcross. (printed in 10/12/98 issue)